Middle Australia to be hit hardest by new asset test rules
Retirement | 8/04/2016 |
2 min read
Impending changes to the Age Pension Assets Test will negatively impact the majority of Australian workers. That’s the feedback from the Australian Institute of Superannuation Trustees (AIST), which has called for an urgent review of the new thresholds due to start in 2017.
Under the proposed changes, Centrelink will reduce payments by $3 per fortnight for every $1000 in assets that an individual or couple has above the new asset test. This is double the current taper rate of $1.50.
While the assets test doesn’t include the family home, superannuation balances do count, and can take many Australian families well beyond the threshold. The new assets test limits are below.
||Not a homeowner
For a couple who own their own home, the new rate means that anything above $375,000 in super will start to see their age pension entitlements reduced.
According to financial modelling carried out by Mercer and the AIST, the new thresholds will unfairly penalise the middle class while benefitting high income earners (who can take advantage of lower marginal tax rates on super contributions, and don’t rely on an age pension).
AIST chief executive Tom Garcia said the new test was, “Extremely harsh and threatened the integrity and sustainability of the super system by disincentivising voluntary saving”.
Mercer senior partner David Knox noted that, “Doubling of the asset test taper from 1 January next year will hurt many retirees who do not have a large retirement nest egg. An increase in the taper to $2 would be reasonable but a $3 taper is tough, especially in a low interest rate environment.”
He added that many retirees with cash balances above the age pension assets test thresholds invested their funds into term deposit accounts, and because of low interest rates, they actually received less than the age pension.
“There is a lack of understanding about the impact of the changes, and there will be an immediate effect for many people,” he said.
We will have to await the 2016 Budget announcement on May 3 for a clearer picture of the changing super landscape, but on current settings, these proposed changes to the assets test will commence from 1 January 2017.
You can find out more about the Federal Budget and how any changes will impact your super and retirement by joining us at the Start Me Up expo in Sydney on May 17.
This document and any information provided with it is for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice.